1. BNPL as a mode of payment is witnessing a positive response from both retailers and customers leading to robust growth in market.
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The South African Buy Now Pay Later sector saw its highest revenue in 2022 after seeing a double-digit CAGR between 2019 and 2022P. The COVID-19 pandemic caused a large portion of the population in South Africa to lose their jobs and rely solely on their savings, which pushed the demand for additional credit lines, which was satisfied by BNPL services. As a result, the BNPL market in South Africa experienced a boom. Additionally, from 2019 and 2022P, the average order value for BNPL transactions increased at a double-digit CAGR.
2. The Covid-19 pandemic, new entrants, external investments, and Fin-Tech adoption are a few growth drivers for the South African BNPL market.
One of the major reasons as to why BNPL is a robust mechanism inside South Africa is due to the fact that customers are allowed to pay the money in three equal instalments with no interest fee. Furthermore, a significant portion of the South African population now has access to traditional bank accounts, and online and mobile banking are widely used, which has led to a significant increase in South Africa’s digital economy over the past several years. There is plenty of room for credit service sectors like BNPL to carve out a strong niche for themselves in the nation.
In addition, when compared to other African nations, South Africa holds a significant share of the fintech market and has one of the highest rates of mobile penetration on the continent. This applies to both financial services and insurance. The rise in e-commerce penetration and the disruption caused by Covid-19 were two other reasons that contributed significantly to the BNPL expansion in Africa in recent years. In order to maintain the growing demand for consumer credit finance, providers like PayFlex and Pay Just Now are working hard.
3. Rising indebtness, high cost to merchants and lack of consumer awareness are serving as major challenges for BNPL market in South Africa.
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Amid the fast growth of BNPL market, regulators are concerned about rising indebtness and risk to consumers. With unthoughtful purchases increasing due unsecure credit risk assessment with these methods. Also, BNPL cost can at times be expensive for the merchants, 3%-7% on top of usual credit card processing fees. Although BNPL now is essential for merchants who want to offer their customers the best payments option available, but it is not a cheap solution. Furthermore, inception of digital payments is still comparatively new in the African market and thus rural consumer segments find themselves being unaware of the latest trends in the BNPL industry. Lastly current human resource and development strategies are inefficient to meet human capital requirements in South Africa especially the rural and pre-urban markets.
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